Today’s REI Classroom Lesson

Nav Athwal explains the legal process from the application down to post-funding for a crowdfunding deal.

REI Classroom Summary

Nav breaks down the steps it takes to get the capital you need through crowdfunding, including how long the process usually takes.

Listen to this REI Classroom Lesson

Real Estate Investing Classroom Show Transcripts:

Mike: Welcome back to the flipnerd.com REI Classroom, where experts from across the real estate investing industry teach you quick lessons to take your business to the next level. And now, let’s meet today’s expert host.

Nav: Hey, my name is Nav Athwal, founder and CEO of RealtyShares, an online marketplace for real estate investing. Now, I’m really excited to be here today in the REI Classroom to talk to you about the legal process for raising debt through crowdfunding for your next fix and flip project. Really exciting topic that we’ll have a great discussion about.

Nav: So you’re here today because you’re thinking about raising capital through crowdfunding. You may be fixing and flipping a single family home or maybe buying a small apartment building, and you’re thinking about crowdfunding as a way to do it.

So today I’m going to talk to you about how you can use crowdfunding and the legal processes that impact you if you are going to use crowdfunding to raise that capital for your next fix and flip project. There are also different processes if you’re looking for equity capital that I’ll talk to you about at a future day. But today we’re just going to be focused on debt capital for fix and flip loans.

So one of the benefits of crowdfunding is it’s much quicker than a bank. A lot of banks require all kinds of documentation. They want to see bank statements, they want to see tax documents, etc, but with crowdfunding one of the benefits is a streamlined process that includes a streamlined process for legal documentation.

So the process really starts with you filling out an application through a platform. For example, at RealtyShares, you can visit www.realtyshares.com, click Raise Capital at the top of the Nav bar and you’re able to estimate a short application on yourself and the type of project you’re looking to fund. Once you’ve submitted that application, our underwriting team will do prescreening and prequalify your project by looking at things like where is it located, what’s your fico score, what kind of leverage are you looking for, etc.

Once that process is completed, then we’ll actually conduct an appraisal at the properties. So we’ll ask you to submit a small application fee, and we’ll have an appraisal visit the property, and determine the value of the property to make sure that the leverage amounts that will come under the loan fit our underwriting criteria. Once the appraisal is ordered, we’ll also order the title report to make sure there are no monetary or other liens at the property that would prevent us from extending a loan to you. So very typical process you’d see with the bank up until that point.

And then finally, if everything looks good, we will issue LOI or a letter of intent, indicating how much we’ll fund at what leverage amounts and at what interest rate and points. So all the specifics around the loan will be in that LOI. And then finally, after that point we’ll drop loan docs. The loan docs will include a promissory note, a deed of trust or mortgage depending on the state in which the property is located, as well as certain disclosure documents that we’ll need from you as part of closing. Once those docs are drawn up, we will work directly with your escrow company or crowdfunding platforms, or directly with your escrow company in order to fund that loan.

And all in that process can be anywhere from 7 to 10 days. So usually, 25% of the time it would take you to fund a loan through a traditional bank. So very quick, very efficient process.

And then post funding of that loan, the crowdfunding platform will also help you service that loan by providing you with direct access, usually to an online portal through which you can make payments either directly, or you can also set yourself up on auto pay, where you can avoid having to log in each month and make the payment. So that’s just a high-level overview of the process around crowdfunding or obtaining debt through crowdfunding for your next fix and flip project. Thanks for listening.
Mike: HomeVestors, the We Buy Ugly Houses folks, is a franchise system of hundreds of real estate investors that have purchased over 65,000 houses. If you’d like to learn more about the most powerful real estate investing system in existence, whether you’re a pro looking to take your business to the next level or whether you have no experience at all but a burning passion to be successful in real estate investing, please visit flipnerd.com/ugly to learn more.

Please note, the views and the opinions expressed by the individuals in this program do not necessarily reflect those of flipnerd.com or any of its partners, advertisers or affiliates. Please consult professionals before making any investment or tax decisions, as real estate investing can be risky.

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Nav Athwal is the Founder and CEO of RealtyShares. Athwal oversees company planning and strategy, legal, investor fundraising across the platform and deal activity. Nav started his career as an electrical engineer, before transitioning into real estate law. He worked as a Real Estate and Land Use Attorney at Farella Braun & Martel, LLP where he led some of the largest mixed-use, residential commercial and renewable energy real estate projects in California on behalf of clients such as Archstone, AvalonBay, FirstSolar, Equity Residential, Related Companies and SKS Investments.RealtyShares is an online marketplace for real estate investing through which Accredited US Investors can invest as little as $5,000 in residential and commercial real estate properties across the United States. To date, RealtyShares has successfully funded over 150 real estate deals to date. Athwal’s San Francisco Team has grown to 18 members in the last year and the company plans to have 35 employees by the end of 2015. In April, RealtyShares raised $10M in a venture round lead by Menlo Park-based Menlo Ventures with participation from General Catalyst Partners.Athwal is a UC Berkeley lecturer on real estate law, a real estate broker and a second-time entrepreneur. He has been featured on television networks such CNBC and Fox Business and regularly contributes to Forbes.